Avolon Holdings disclosed on Tuesday that it had recorded a US$304 million write-off in relation to 10 planes stuck in Russia. This caused the group to record a loss for the January-March quarter of US$182 million, more than double the figure for a year earlier.
“While we continue to make every effort to recover these assets and are pleased to have repossessed four aircraft, we are recognising the full impairment this quarter, putting the financial impact of Russian sanctions firmly behind us,” said chief executive Domhnal Slattery in the statement.
China’s Bohai Leasing, which owns 70% of Avolon, had last week disclosed a US$298 million asset impairment in relation to the 10 planes, which caused it to record a quarterly loss of 737.80 million yuan (US$111.62 million).
It said there is a “relatively large level of uncertainty” over when and how Avolon might get back the remaining jets.
According to a ranking published by KMPG earlier this year, Avolon is the world’s second-largest jet lessor by fleet size, behind only AerCap.
Aircastle, controlled by Japan’s Marubeni and Mizuho Leasing, similarly last week took a US$251.9 million write-off after recovering just two of 12 planes leased to Russian operators along with one from Ukraine.
It then recorded a US$215.9 million net loss for the quarter ended Feb 28 in relation to the stranded planes. The Russian portfolio had generated about US$3.5 million in revenue in February.
“Decades of peaceful economic coexistence have enabled global aviation — especially aircraft leasing — to grow and thrive,” Mike Inglese, chief executive of Aircastle, said during an earnings call on Thursday. “Russia’s invasion of Ukraine and the international sanctions that followed make it difficult to predict what the future may hold.”
The lessors have been squeezed by EU sanctions which required the termination of all leases with Russian companies by March 28 as Avolon and the European units of many Asian lessors like Aircastle have long been based in Ireland for tax reasons.
Russia responded to the EU’s move with measures authorising its airlines to hold onto leased planes and re-register them locally.
BOC Aviation, a Hong Kong-listed unit of Bank of China, indicated in its annual report last week that 17 of the 18 jets it had leased to Russian clients including S7 Airlines, Ural and Pobeda, the budget arm of Aeroflot, remained in country. The stranded planes had a net book value of US$589 million, or 2.5% of the group’s total assets, as of March 31.
“This is a complex and developing situation that we are monitoring closely,” the company said in the filing. “We intend to fully comply with all sanctions and other similar laws that are applicable to our business.”
CDB Aviation, an affiliate of state-owned China Development Bank, has cut its exposure to Russia to 3% to 4% of total net book value, S&P Global Ratings analyst Cathy Lai said in a research note last week.
The group earlier had 15 planes placed in Russia, or about 6% of its fleet, but Lai said that its success getting some back would reduce its expected write-off.
CDB has not made any public comment, but parent China Development Bank Financial Leasing said in its annual report last week that it was “currently following up on the possible impact of the conflict between Russia and Ukraine” on its leased assets.
Air Lease, a US leasing company, said last week that it expects to take a US$802.4 million write-off on its Russian business in its first-quarter results, to be released later this week. It counted 27 planes that it owns or manages which remain stuck in the country.
For Avolon, which is 30% owned by Japan’s Orix, the Russian write-offs set back its recovery from the financial woes that enveloped Bohai amid the collapse of HNA Group, its former parent.
Bohai’s revenue in the first quarter rose 13% from a year earlier, thanks to rising receipts from leasing planes and cargo containers. It also recorded a 191.57 million yuan gain related to debt restructuring as a Chinese court concluded HNA’s rehabilitation process last month. Bohai reported a 404.05 million yuan loss in the first quarter of 2021.
Other Asian lessors who had placed planes with flag carrier Aeroflot include ICBC Financial Leasing and Goshawk, a unit of Hong Kong conglomerate New World Development. Goshawk’s website, however, no longer lists Aeroflot or Ural among its airline clients.
Hong Kong-listed China Aircraft Leasing Group Holdings said in its annual report last month that its Russian exposure was “relatively small,” with just one aircraft leased to each of two operators in the country.
It put the carrying value of the planes at 635.5 million Hong Kong dollars (US$81 million) and said it will “continue to monitor and assess the situation as it evolves”.